What advisers need to know about non-dom property rules
- To understand what the new non-dom rules are.
- To learn about how this will affect inheritance tax planning.
- To ascertain how best to support clients with IHT planning.
- To understand what the new non-dom rules are.
- To learn about how this will affect inheritance tax planning.
- To ascertain how best to support clients with IHT planning.
The UK Government has dealt yet another blow to the ownership of UK residential property through corporate structures.
Essentially, this means that after 5 April 2017 these types of structures will now fall within the scope of UK inheritance tax (IHT).
Until now, ownership of UK residential property through non-UK companies has been relatively standard IHT planning for many non-doms (i.e. individuals who are not domiciled in the UK nor deemed domiciled for IHT purposes) and trusts established by them.
Bringing these structures within the scope of IHT is a significant change to the current position and one that is certainly proving to be challenging for advisers and wealth managers, across many fronts.
Advisers have been considering the impact of these new rules for some months now and, unfortunately, there is still some uncertainty in areas.
Although the legislation has only just been finalised, with the Finance Bill coming out at the end of March, it is necessary to carry out a full review of these structures as soon as possible, as in some cases action will be required before 6 April 2017.
Any structures in place which have not yet been reviewed will now need urgent attention.
Summary of the draft proposals
The government’s intention is to create a new category of property for the purposes of the UK IHT regime: non-UK property which is “non-excluded”.
It is implausible that the executors will have even heard of the new rules relating to sale proceeds.Under current law, foreign assets of a non-dom, or of a trust created by such an individual, are “excluded property” for IHT purposes and, as such, are outside the scope of IHT. Shares in a non-UK company, for example, are currently excluded property and therefore outside the scope of IHT.
From 6 April in some cases (as described below) they will not be excluded property any longer and could be subject to IHT at 40 per cent on the death of the owner or, if they are held in trust, subject to a different charging regime, which is in some ways even more complicated.
In accordance with the new legislation which will take effect from 6 April 2017, certain assets that are currently excluded property (because they are non-UK situated) will fall within the new category of non-excluded property, and will be within the scope of IHT.
The aim of the new rules is to prevent non-doms benefiting from structures and arrangements which, under current law, can be used to reduce or eliminate their exposure to IHT where a UK residential property has been acquired.
